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Progress in US Telecoms Transformation

The scene was set by the Obama Transition Team

The impact of the changes set in motion by President Obama back in late 2008 in relation to the direction the telecommunications are slowly becoming apparent and are taking many Americans by surprise, even many of the experts and analysts in this industry. This has created a lot of noise and confusion, as people are trying to understand what is happening and how it will affect them.

Soon after Barack Obama won the election I followed up on previous discussions I had with members of what then had become the Obama Transition Team. Against the background of the Australian national broadband and trans-sector policies they were interested in receiving reports on new ways of looking at the telecoms market.

However, while I had a very clear vision of what the telecoms future should look like, and of what needed to be done to get there, at that time I was ill-prepared for the daunting task that would confront us in achieving this in the USA.

Perhaps, in a way, that was a good thing as it allowed me to approach these changes with a very open mind.

I formed a team of top experts (half of them from the USA and half from elsewhere in the world) and one of the key people in the Obama Transition Team, Susan Crawford, applied the term ‘BigThink Strategies’ to describe our work.

The importance of the transition period only became clear to me later on. Given the existing dysfunctional American political system this transition period between Election Day and the Inauguration proved to be of incredible importance; but it also represented a very small window of opportunity where President Obama could provide new directions without being suffocated by the political system on Capitol Hill.

In all we produced six reports:

Big Think Strategies—Trans-Sector Thinking leading to Smart Communities
Comments of Big Think Strategies on Open Access as filed with the FCC
Big Think Strategies—Plans for the transition of the US telecoms industry
Big Think Strategies—Costings and open network issues in relation to FttH deployments
Big Think Strategies—Innovation networks: where e-science and telecoms meet
Big Think Strategies—Open Access Policies

Administration and the FCC came onboard

It was most rewarding to see that concepts such as open networks were adopted in the US economic stimulus packages in relation to both the national broadband and smart grid plans (February 2009). However, to achieve an enduring transformation of the industry it was essential for the Transition Team to ensure that these ideas received broad support from within the Administration. During the ensuing months of the transition process, the White House appointed key government people to critical positions for this purpose. These people obviously supported the new directions that were being developed by the White House.

As I reported after my visit to the White House in October 2009, I received clear confirmation that this indeed was the case; the ideas that we had presented to the Obama Team were not only supported by the Obama Transition Team, but also by the Department of Commerce and by the FCC. It was also pleasing to learn that after the White House had already established a ‘Trans-sector Team’ earlier in the year. The FCC had also adopted this approach and appointed a Director National Purpose in charge of the various broadband-based trans-sectoral developments.

These strong commitments sustained my belief that the USA was serious about a transformation of their telecoms industry—this despite the fact that many of my American colleagues despairingly complained about the weakness of the policies that were tabled by the FCC and the lack of any strong action from the President or the Department.

FCC must play a strategic game

There is still a very long way to go, but I can now see that the ‘grand plan’ has a good chance of coming together. While many will argue that it is still far from clear if and how this going to happen, I maintain my optimism. Initially I was also concerned about the ‘low key’ approach being taken by the FCC and the lack of strong leadership on this matter on the part of the President—the plans were certainly visionary and reflected a great deal of what we had written in our reports, but they were also very thin on real deliverables.

It was at this point that I started to learn more about American politics—and these are difficult enough for Americans to grasp, so what hope was there for me?

However, learning on the job, it became clear that it would have to be very much a strategic game, both in relation to the political system and to the incumbent industry. The FCC has limited powers and needs (of course) to operate within the law. What had happened over the previous decade under the Bush Government was that the vested interests in the US telecoms industry had been able to change several of these laws to their advantage. This led, among other things, to a strengthening of the duopoly between the telco and cable operators; to the abandonment of wholesale regulations in relation to local loop unbundling; and to the extraordinary change in legislation that declared the Internet an information service rather than a telecoms service.

Like it or not, these (as well as many other rather unbelievable regulations, all in favour of the vested interests) are now law, and the FCC will have to operate according to that legislation. To change that within the current dysfunctional political situation would be almost impossible, and it could easily lead to a decade of litigation.

Obama FCC is different from Bush FCC

The Obama FCC, however, is a totally different organisation from the previous Bush FCC. Under the leadership of its inspiring Chairman, Julius Genachowski, and Blair Levin, the architect of the National Broadband Plan, a very enthusiastic team of people has been brought together in the FCC. They have been working extremely hard to find ways to make their plans a reality, despite the fact that, in terms of the existing legislation, the odds are against them.

So this is not a straightforward plan involving the development and implementation of policies, but a very strategic cat and mouse game whereby the FCC needs to find ways to either bypass the legal quagmire or find other ways to force the issue, for example by presuming authority to act on certain issue and then see what happens.

Bush’s telecoms policies unfit for a modern society

The vested interests, for example, now also question the FCC’s power to be involved in broadband, citing the fact that broadband is an Internet service and thus an information service, and so has nothing to do with telecoms regulations.

While this would be perceived as a ridiculous situation anywhere else in the world in the USA it is the reality.

Interestingly it was Congress that ordered the FCC to develop a National Broadband Plan, so it will be interesting to observe the reaction of Congress if the courts now tell the FCC that they can’t be involved in broadband.

The court case that Comcast recently won—the one that established that the Internet is an information service and that the FCC therefore doesn’t hold any regulatory powers over issues such as net neutrality—might well be a pyrrhic victory for the incumbent, since it opens the door for the next move in this cat and mouse game.

As Susan Crawford indicated in an article in the New York Times, the FCC does have the power the ‘relabel’ the Internet, from ‘information service’ to ‘telecoms service’. As this makes absolute sense it shouldn’t be too difficult for the FCC to build a good case for it.

Other developments that form part of this growing ‘stream’ are related to using spectrum policies to implement change—a critical element of the NBP.

Linked to this, of course, is the trans-sector use of this spectrum and the mobile infrastructure for the various Public Safety agencies.

Trickles of change are becoming streams

What all of this shows is that the changes set in motion by the Obama Transition Team back in late 2008, which began as a few trickles, are now slowly turning into larger streams and there is no doubt in my mind that these will develop further, into a cascading waterfall. As mentioned above, all these developments make total sense both economically and socially, as well as in relation to new business opportunities and economic innovations that will further assist the country in the transformation to the digital economy.

That these changes are gaining momentum can also be measured by the fact that the incumbents are becoming more nervous and restless. They started out with a rather arrogant attitude towards the initial policies attached to the stimulus packages, basically discarding them as unimportant, but they are now starting to change their tune and are threatening legal action if the FCC attempts to touch their monopolies; however the totally inadequate quagmire of telecoms legislation that was set up under the Bush Administration is beginning to unravel as it becomes increasingly clear that the foundations upon which this legislation was built are totally flawed.

There is now widespread acknowledgment that high-speed broadband is critical infrastructure. Verizon has indicated that it can’t make its FttH project FiOS commercially-viable.

This is precisely what we indicated in the reports to the Obama Transition team in 2008. A trans-sector approach to the infrastructure is essential, and this infrastructure should be shared with the healthcare, education, transport, energy and public safety sectors. If they all contribute to such a project high-speed broadband (FttH) will be economically viable in a commercial sense, and at the same will deliver huge economic and social benefits to the country.

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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